Can you save a sinking ship if you don’t know where the leak is? Can you save money if you don’t know how it all disappears? One of the best and simplest ways to cut expenses is to record where your money goes and THEN reduce wasteful spending. After that, compare your expenses with your income and slowly lower it until you make far more than what you spend.

Personally, I’ve found that a simpler version of Vicki Robin and Joe Dominguez’ technique from “Your Money or Your Life” works best, and I’ll show you how to use it here.

*By the way, you can either create your own file, or you can use the free template that I’ll share with you later. I’ve personally used it since 2009.

First: How does recording your expenses save money?

You’ll know where you waste money.

By tracking your expenses to the nearest cent (USD) or peso (PHP), you’ll see where your money goes every month and where it’s being wasted. (Ex. If HALF your income goes to “clothes” or “credit card” every month you better check those out).

You’ll save more money.

If you knew you’d have to take a few seconds to record that candy bar or whatever small purchase in your expense tracker, you’d likely want to skip buying it. That added inconvenience will stop a lot of impulse purchases and save you money.

You’ll be more motivated to fix your finances.

Track your expenses AND INCOME Every month and graph them. When you see that expense line going down to below your income line, you’ll be even MORE motivated to save even more (and if you see that you’re suddenly spending too much, you’ll limit yourself so that your expenses do not increase beyond your income).

How to Record Expenses:

1. Every time you buy something, record how much you spent on your file. That’s it! If you can’t access your file at that moment, just write what you’ve spent on a piece of paper (that’s what I do most of the time. Once you get the habit, it’s as easy as walking.)

2. Every month, review your expenses and see where most of your money went. Ask yourself: Are there things that I’m wasting too much money on? What expenses can I reduce? Are there ways to increase my income?

3. Graph your Expenses against your Income. (Google Sheets has an “Insert Chart” tool which can create a line graph for your income and expense data. You can also use the template we have.)

Note: You don’t need to feel guilty if your expenses exceed your income at first or if it occasionally spikes on months where serious emergencies happen. It happens to everyone (myself included). It’s a part of life, and your goal is to keep expenses as far below your income as often as possible.

A Special Note for Debts:

I’d like to thank one of our readers (J.B.) for asking this! I don’t usually borrow money or take loans so I didn’t really consider how you’d record debts, but if I would, this is how I’ll do it:

For Long Term Debts like loans and mortgages with monthly payments, I record the money gained from the loan and the expense (e.g. “bought car on a $5,000 loan”) on a different file, then I record the debt payments every month as an expense.

For Short Term Debts like borrowing a couple of bucks from a friend, I’d either record the thing I bought with the money or I’d record the debt payment as an expense. You don’t record both as they’ll overlap. Take note, if you have no savings and you buy too much stuff on debt, you’ll notice a NEGATIVE income minus expense computation. That’s what happens when you get into debt—you spend more than you earn.

Continue with this program and eventually, you will be able to cut expenses simply because you know what your top money-wasters are. Keep expenses low, your income high, and use the money you saved to invest and earn more money!

If you want to learn how to invest the money you saved, these are a few articles you might want to read:

By the way, for your FREE Expense Tracker Template and FREE Graph Template, just enter your email below and we’ll send it there!

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The “Tracker Template” (one Simple version, and another with subcategories) automatically calculates the totals that you need on the second sheet, and you can easily copy the numbers over to the “Income vs Expense Graph.” By the way, just upload those .xlsx files to your Google Sheets Account and you can open/edit them from there.

About Ray

Ray is the head writer behind YourWealthyMind.com and is a proponent of self-improvement and self-education. He believes anyone can achieve their goals once they learn how, and he considers it his mission to enrich lives and end poverty by teaching people lessons they may need to succeed.